2016-02-01
First contribution transferred for resolution of failing banks with their own rather than tax-payer money
In the future, banks that encountered financial difficulties, if necessary, will be resolved using private funds instead of tax-payer money. From the beginning of the year, the Bank of Lithuania and the Single Resolution Board are responsible for the resolution of financial institutions operating in Lithuania. The first contribution of EUR 10.1 million (i.e. funds of commercial banks and the Lithuanian Central Credit Union) was transferred to a special fund, whose funds may be used for the resolution of problem banks.
‘The bail-in will ensure that losses of banks facing serious difficulties will firstly be covered by shareholders and creditors. In order to do so, resolution plans will be prepared; to some extent, they may also be called bank longevity plans. The resolution of banks will be aimed at ensuring that services relevant to the financial stability of the country, e.g. payments or transfers of funds, will continue to be provided. Ordinary bankruptcy proceedings may be applied in relation to other parts separated from commercial banks during the resolution’, said Tomas Garbaravičius, Member of the Board of the Bank of Lithuania.
With the transposition of the requirements of the EU Bank Recovery and Resolution Directive and the Single Resolution Mechanism Regulation into the national law, additional functions were assigned to the Bank of Lithuania — the central bank became the national resolution authority. From now on, despite the already-existing resolution tools, such as sale of business, bridge institution founding or property separation, the resolution authority will also be able to use the bail-in tool.
In cooperation with the Single Resolution Board and the national resolution authorities of foreign banks operating in Lithuania, the Bank of Lithuania will prepare detailed resolution plans, which will be followed if it will be necessary to ensure the business continuity of a commercial bank facing serious problems.
The resolution of problem banks will be, first and foremost, financed with the funds of shareholders and creditors, and, if necessary, with funds from the centralised euro area Single Resolution Fund. Funds in this fund will be accrued from the annual contributions of commercial banks of euro area countries. The first EUR 10.1 million contribution transferred to the fund from Lithuania was collected from AB SEB bankas, AB Swedbank, AB DNB bankas, AB Šiaulių bankas, AB Citadele bankas, UAB Medicinos bankas and the Lithuanian Central Credit Union. Commercial banks of the EU countries that set up branches in Lithuania will make contributions in accordance with the respective requirements of those countries.
Having become the national resolution authority, the Bank of Lithuania began to participate in the activities of the Single Resolution Mechanism and the Single Resolution Board, an EU-level resolution authority. In addition to the joint supervision of banks that has been done in cooperation with the European Central Bank since 2015, this will be the second important step to ensure full participation in the EU banking union, strengthening the financial stability of the country.